Busmente Comm 1

[A.M. No. MTJ-02-1443.
July 31, 2002]
JOSIE BERIN and MERLY ALORRO, complainants, vs. JUDGE FELIXBERTO P. BARTE, Municipal Circuit Trial
Court, Hamtic, Antique, respondent.
DECISION
MENDOZA, J.:
This is a complaint for grave and serious misconduct filed by Josie Berin and Merly Alorro against Judge
Felixberto P. Barte, Presiding Judge of the Municipal Circuit Trial Court (MCTC), Hamtic, Tobias Fornier and Anini-y,
Antique.
Complainants Josie Berin and Merly Alorro are real estate agents. They allege that sometime during the last
week of January 2001, respondent judge invited them to his office and asked them to look for a vendor of a lot for
sale in Antique because the Manila Mission of the Church of Jesus Christ of Latter Day Saints, Inc. wanted to buy a
site for its church in Antique.Complainants claim that they found a vendor, Eleanor M. Checa-Santos, who owned a
lot consisting of 4,000 square meters, known as Lot 5555-B, Psd-06-000304 and located in Barrio Caridad,
Municipality of Now, Hamtic, Antique, which she was willing to sell; that they told respondent judge about the lot;
that respondent judge informed them three days later that the Church was willing to pay P2.3 million for the lot;
that respondent judge agreed that complainants would each receive a commission of P100,000.00 in case the sale
took place; and that respondent judge would receive the money from the vendee and then deliver the share of
each of the complainants. Complainants said they wanted to have the agreement in writing, but respondent judge
refused, saying, Do you have no trust in your Judge Barte? This is the reason there is no written agreement of the
transaction between them.
Complainants alleged that the sale was consummated and respondent judge received the purchase price, but,
despite demands made by them for the payment of their commission, respondent judge gave them only P10,000.00
each, telling them to take it or leave it. Hence, this complaint.
In his Comment, dated August 23, 2001, and Supplemental Comment, dated August 27, 2001, respondent judge
denied the charges against him. He denied that he ever invited the complainants to his office in January 2001 and
BUSINESS ORGANIZATION 1
told them of the desire of the Church to buy a lot in Antique. According to him, as early as January 25, 2001, the
Church had already purchased the same land described in the complaint and the vendee had already paid 50% of
the sale price to the vendor, as evidenced by a Closing Certificate showing that the payment took place at the
Metrobank, San Jose, Antique Branch on said date. Complainants said the Deed of Sale was notarized on February
12, 2001.
Respondent judge likewise denied that he agreed to pay complainants P100,000.00 each as commission for the
sale. But he said that, sometime in November 1999, complainant Merly Alorro, whom he considered his friend,
learned from complainant Josie Berin that the lot in question was up for sale, and Alorro told him about it. Based
on such information, respondent judge said he was able to facilitate the sale of the land after almost two (2) years
of hard work. Since he was able to realize some amount from the sale, he decided to give complainants a share for
the information they gave him, although they never contributed to the success of the transaction. He gave
complainant Berin P7,000.00 and Merly Alorro P12,000.00.
Respondent judge contended that he cannot be held liable in this administrative proceeding since the act
complained of does not pertain to the performance of his official function as judge. He further contended that the
case of Teofilo Gil v. Eufronio Son,[1] which involved the dismissal of a judge for refusing to acknowledge and repay
a loan of P15,000.00 which was acquired in return for a favor for employment, is inapplicable to this case because
his transaction was an open and honest one, compared to the secret deal involved in the Gil case.
The Office of the Court Administrator (OCA) agrees that respondent judge cannot be held liable for refusing to
honor his obligation under the alleged contract on the ground that the same has no relation to his official duties as
a judge and does not amount either to maladministration or willful intentional neglect and failure to discharge the
duties of a judge. However, it believes that respondent is liable for violation of Canon 5, Rule 5.02 of the Code of
Judicial Conduct and recommends accordingly that he be fined P5,000.00.
The recommendation is on the main well taken.
The peoples confidence in the judicial system is founded not only on the competence and diligence of the
members of the bench, but also on their integrity and moral uprightness. He must not only be honest but also
appear to be so. He must not only be a good judge, he must also appear to be a good person.[2]
Whether the sale of the property was effected through the efforts of complainants making them entitled to a
commission is a matter that should be threshed out in a judicial proceeding.Our concern in this case is whether
respondent judge committed an impropriety in acting as a broker in the sale of a real estate, for which he admits
receiving a commission.
Article 14 of the Code of Commerce prohibits members of the judiciary and prosecutors from engaging in
commerce within their jurisdiction. It provides:
Art. 14. The following cannot engage in commerce, either in person or by proxy, nor can they hold any office or
have any direct, administrative, or financial intervention in commercial or industrial companies within the limits of
the districts, provinces, or towns in which they discharge their duties:
1. Justices of the Supreme Court, judges and officials of the department of public prosecution in active
service. This provision shall not be applicable to mayors, municipal judges, and municipal prosecuting attorneys
nor those who by chance are temporarily discharging the functions of judge or prosecuting attorney.
....
5. Those who by virtue of laws or special provisions may not engage in commerce in a determinate territory.
However, in Macaruta v. Asuncion,[3] it was held that Art. 14 is in the nature of political law and since it was
extended to this country by Spain it was necessarily abrogated upon the change of sovereignty from Spain to the
United States. Nevertheless, the Court admonished a judge who had been found to have engaged in business to be
more discreet in his private and business activities, because his conduct as a member of the Judiciary must not only
be characterized by propriety but must always be above suspicion.[4]
After the decision in Macariola v. Asuncion, this Court adopted the Code of Judicial Conduct, which took effect
on October 20, 1989, the pertinent provision of which states:
Rule 5.02. A judge shall refrain from financial and business dealings that tend to reflect adversely on the courts
impartiality, interfere with the proper performance of judicial activities, or increase involvement with lawyers or
persons likely to come before the court. A judge should so manage investments and other financial interests as to
minimize the number of cases giving grounds for disqualification.
This provision thus supplies the void left by the abrogation of Art. 14 of the Spanish Code of Commerce. Indeed,
it is not good for judges to engage in business except only to the extent allowed by Rule 5.03 of the Code of Judicial
Conduct which provides:
Subject to the provisions of the preceding rule, a judge may hold and manage investments but should not serve as
an officer, director, manager, advisor, or employee of any business except as director of a family business of the
judge.
As the OCA observed:
By allowing himself to act as agent in the sale of the subject property, respondent judge has increased the
possibility of his disqualification to act as an impartial judge in the event that a dispute involving the said contract
of sale arises. Also, the possibility that the parties to the sale might plead before his court is not remote and his
business dealings with them might [not only] create suspicion as to his fairness but also to [his ability to] render it
in a manner that is free from any suspicion as to its fairness and impartiality, and also as to the judges integrity
(Martinez vs. Gironella, 65 SCRA 245). One who occupies an exalted position in the administration of justice must
pay a high price for the honor bestowed upon him, for his private as well as his official conduct must at all times be
free from the appearance of impropriety (Jugueta vs. Boncaros, 60 SCRA 27).
A similar complaint is pending before this Court against respondent judge arising from the sale, also to the
Manila Mission Church of Jesus Christ of Latter Day Saints, Inc., of three pieces of real estate in Antique, one of
which is the property owned by Eleanor Checa-Santos involved in this case. The complainant there is Editha O.
Catbagan.[5] This case appears to be the first offense of respondent judge. Since that case is still pending
investigation, it cannot be considered in fixing the penalty in this case.
WHEREFORE, respondent Judge Felixberto P. Barte is found GUILTY of violation of Canon 5.02 of the Code of
Judicial Conduct and, considering this to be his first offense, is hereby FINED in the amount of P2,000.00, with the
ADMONITION to him to be more discreet and prudent in his private dealings as in his judicial duties. A repetition of
a similar infraction will be sanctioned more severely.
SO ORDERED.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE

FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY
and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT
OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos.
05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court
and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares),
American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall
not interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can
nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only
among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and
marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners,
European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary
wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated
enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of
the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A
and, insofar as permitted under Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine
individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three
of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the
grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member
of the Executive Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of
Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation
shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations
between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand
the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint
venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to
the election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang
Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R,
Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin
Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for
the nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by
the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman
then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6
nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the
decision of the Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo,
AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned
by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively
in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the
six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess
the meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried
and declared the meeting adjourned. Protests against the adjournment were registered and having been ignored,
Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the
meeting would be reconvened in the next room. The Chairman then threatened to have the stockholders who did
not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue
the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in
the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected
directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six
(6) nominees for the four (4) remaining positions of directors and that the body decided not to break the tie. (pp.
37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange
Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo,
Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo
warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E.
Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed
to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the
election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group
and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano
E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its
decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new
stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the
Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals)
rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and
Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF
THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS
REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION
THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES
WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by

stockholders and the replacement of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without
due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a
continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND
THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY
ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24,
Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined:
(1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint
venture or some other relation depends upon their actual intention which is determined in accordance with the
rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co.
(DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should
be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention
was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show that the parties' agreement was to establish a
joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence
rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group
never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and therefore, there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following
cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the
parties or the validity of the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim
in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners
or joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude,
the existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture
enterprise, and if some words in the Agreement appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a contract shall be
interpreted together attributing to the doubtful ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original
Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of
an enterprise for their joint profit, the question whether they intended by their agreement to create a joint
adventure, or to assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p.
871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence
presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a
corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of
the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National
group of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the
minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b)
(ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the
vote of this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares
[Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)].
The Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI
[Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export
Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to
Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for
certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority
voting requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case,
the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock
and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as
the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders who established a
corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the
nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that
Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local
firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the
developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is
always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or
monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and
becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing
to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements reserve controlling ownership to
Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements
regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide
that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may
agree, or as determined in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95
stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the
Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If
the members of one family and/or business or interest group are considered as one (which, it is respectfully
submitted, they should be for purposes of determining how closely held Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder
Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim
that Saniwares is a public issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly
applied principles of corporation law designed primarily for public issue corporations. These courts have indicated
that express arrangements between corporate joint ventures should be construed with less emphasis on the
ordinary rules of law usually applied to corporate entities and with more consideration given to the nature of the
agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry;
240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296
Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations",
11 Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture corporations should control, and the courts ruled
that substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants
who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of
corporation management. A noted authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one or more of the following: (1)
require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3) give to the shareholders control over the
selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See
I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these
agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty
five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter
into an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to
protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not
parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and more often
resorted to in close corporations. But they may also be found necessary even in widely held corporations. Moreover,
since the Code limits the legal meaning of close corporations to those which comply with the requisites laid down
by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come within the
definition. In such case, its stockholders should not be precluded from entering into contracts like voting
agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors
restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held
by the SEC, is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during elections of
Saniwares' board of directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of the corporation is
spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI
and the remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is
obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and
adhere to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the extent that such may interfere with the
stockholder's rights to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not
be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down, even if
such agreement has been freely entered into by experienced businessmen and do not prejudice those who are not
parties thereto. It may well be that it would be more cogent to hold, as the Securities and Exchange Commission
has held in the decision appealed from, that cumulative voting rights may be voluntarily waived by stockholders
who enter into special relationships with each other to pursue and implement specific purposes, as in joint venture
relationships between foreign and local stockholders, so long as such agreements do not adversely affect third
parties.
In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all
that needs to be done is to give life and effect to the particular contractual rights and obligations which the parties
have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats
Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be
protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection,
we feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This
Court should recognize and uphold the division of the stockholders into two groups, and at the same time uphold
the right of the stockholders within each group to cumulative voting in the process of determining who the group's
nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino
stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than
the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the
board seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their
additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the
right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites
section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or governing body of
corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query,
however, is whether or not that provision is applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been
generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed.
811 [1920]) It is in fact hardly distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12
289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular
or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be
governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of
joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not
the ASI Group may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of
director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative
voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement."
As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members of the
board of directors while Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of
directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden
to them would obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate
court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed to designate under the Agreement, and may even be
able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as regards the
possible domination by the foreign investors of the enterprise in violation of the nationalization requirements
enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position
is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital
of the entity. It is to be noted, however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign
Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in
future dealings, this limitation of six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of directors there are provisions
already agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the
appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo,
Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly
elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting
during the election of the board of directors of the enterprise as ruled by the appellate court and submits that the
six (6) directors allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the
Agreement which uses the word "designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders
are allowed to select their nominees separately and not as a common slot determined by the majority of their
group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be
interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated
earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No.
75951 agreed to this procedure, hence, they cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure
cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus
elected being genuine members of the Filipino group, not voters whose interest is to increase the ASI share in the
management of Saniwares. The joint venture character of the enterprise must always be taken into account, so
long as the company exists under its original agreement. Cumulative voting may not be used as a device to enable
ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No.
75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang
Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at
the March 8,1983 annual stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs
against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G. R. No. 164317 February 6, 2006
ALFREDO CHING, Petitioner,

vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM
of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP No.
57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to
October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank)
for the issuance of commercial letters of credit to finance its importation of assorted goods.3
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The
goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging
delivery of the following goods:
T/R Nos. Date Granted Maturity Date Principal Description of Goods

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand
Synthetic Graphite Electrode
1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)
Calorized Lance Pipes
1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired Refractory
Tundish Bricks
1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for CCM
1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds
2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory Nozzle
Bricks
1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite Electrode
[with] tapered pitch filed
nipples
1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles
calorized lance pipes [)]
1895 12-17-80 03-17-81 P67,652.04 Spare parts for
Spectrophotometer
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds
2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds
2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for rolling
mills
2100 02-10-81 05-12-81 P210,748.00 Spare parts for Lacolaboratory
Equipment5
Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by
way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof
as soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent
bank. In case the goods remained unsold within the specified period, the goods were to be returned to respondent
bank without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the
form of money or bills, receivables, or accounts separate and capable of identification" were respondent bank’s
property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value
amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against
petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the
Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court
(RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said
court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed
in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations.
This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the
material allegations therein did not amount to estafa.10
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez,11 holding that the penal
provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not
limited to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a
trust receipt is an act violative of the obligation of the entrustee to pay."12
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the
Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable
cause to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having
signed the trust receipts as surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ)
via petition for review, alleging that the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the misappropriation of the goods subject of
the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature.14
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing the
assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior
Vice-President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus,
the execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No.
115. The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods
ultimately destined for sale, as this issue had already been settled in Allied Banking Corporation v.
Ordoñez,16 where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component of a product ultimately sold but covers failure to turn
over the proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in
accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not
only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways:
first, as surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v.
Court of Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via
criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without
prejudice to the civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary,
following Rizal Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the
criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against
petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No.
99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of
the Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING OPPRESSIVELY AGAINST
ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN
PRESENTED TO PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF DISCRETION AND IN EXCESS OF
HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME
INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE
INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN GRAVE ABUSE OF
DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE
PETITIONER DESPITE LACK OF SUFFICIENT BASIS.19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice."20
In its Comment on the petition, the Office of the Solicitor General alleged that -
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO CHING IS THE OFFICER
RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF
VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE CONDUCT OF THE
PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT THE PROPER MODE OF
REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE
DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds.
On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and
incorporated in the petition was defective for failure to comply with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari,
prohibition and mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly
issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the
trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he
violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoñez;22 and (c) petitioner was estopped from raising the
City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in the
DOJ.
Thus, petitioner filed the instant petition, alleging that:
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE CERTIFICATION OF
NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILED
RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be
construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of
non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential
facts about pending actions concerning similar issues and parties. It asserts that petitioner’s failure to comply with
the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in
Melo v. Court of Appeals.24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his
petition before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the
Court of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by
a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules.
The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall contain
the full names and actual addresses of all the petitioners and respondents, a concise statement of the matters
involved, the factual background of the case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the
status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days
therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing
requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise
provided.26
Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to
certify that he "had not heretofore commenced any other action involving the same issues in the Supreme Court,
the Court of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4,
Section 3, Rule 46 of the Revised Rules of Court.
We agree with petitioner’s contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the
Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the
contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed
of.27However, there must be a special circumstance or compelling reason which makes the strict application of the
requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover,
as worded, the certification cannot even be regarded as substantial compliance with the procedural requirement.
Thus, the CA was not informed whether, aside from the petition before it, petitioner had commenced any other
action involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court
ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough
to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out
with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI,
there is no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his
liability, if at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the
entrustee. These assertions are, however, too dull that they cannot even just dent the findings of the respondent
Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities,
the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials
or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal
offense.’
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13)
trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot
be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against
the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus,
the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD
115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately
destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been
settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled
that PD 115 is ‘not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed
as a component or a product ultimately sold’ but ‘covers failure to turn over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts.’
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities
which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as
determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the
corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our
penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities
arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case
is clearly separate and distinct from his criminal liability under PD 115.’"28
Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity
as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used
the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged
as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the
transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e
never received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit.
35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any
liability. Petitioner’s responsibility as the corporate official of PBM who received the goods in trust is premised on
Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of
in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the
provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred
and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be
imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM,
it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBM’s
violation of P.D. No. 115.29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer
may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford
adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly administration
of justice; (c) when the acts of the officer are without or in excess of authority; (d) where the charges are
manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against
the accused.31 The Court also declared that, if the officer conducting a preliminary investigation (in that case, the
Office of the Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the
absence of probable cause, such act may be nullified by a writ of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be prepared by
the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent
for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is
filed against the respondent despite absence of evidence showing probable cause therefor.34 If the Secretary of
Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of
Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be
nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution,
is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to
believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably
charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable
cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the
suspect.36
However, while probable cause should be determined in a summary manner, there is a need to examine the
evidence with care to prevent material damage to a potential accused’s constitutional right to liberty and the
guarantees of freedom and fair play37 and to protect the State from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges.38
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in
issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person
referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security
interests over certain specified goods, documents or instruments, releases the same to the possession of the
entrustee upon the latter’s execution and delivery to the entruster of a signed document called a "trust receipt"
wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over
to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust
receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in
accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially
equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the
goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under trust receipt for the
purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods
whether in its original or processed form until the entrustee has complied fully with his obligation under the trust
receipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or necessary to their sale;
or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c)
to effect the consummation of some transactions involving delivery to a depository or register; or d) to effect their
presentation, collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments
for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods,
documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security
for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview
and coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt
agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster
and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to
the entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire,
theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments
in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the
trust receipt not contrary to the provisions of the decree.40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust
receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all
other rights conferred on him in the trust receipt; provided, such are not contrary to the provisions of the
document.41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt
transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under
the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with
liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Bank’s
account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or
the proceeds) either by way of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other
casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the
understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other expenses
incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply
against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours
to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust
Receipt to the BANK without any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification as property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the
failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said
goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured
as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v.
Ordoñez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The
non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if
not sold or otherwise not disposed of, violate the entrustee’s obligation to pay the amount or to return the goods to
the entruster.
In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money received under the obligation involving the
duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to return it (devolvera) to the owner.46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to
return said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D.
No. 115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not.
A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that
causes prejudice, not only to another, but more to the public interest.47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had
no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of
in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the
provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred
and fifteen, as amended, otherwise known as the Revised Penal Code.1âwphi1 If the violation or offense is
committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible
for the offense, without prejudice to the civil liabilities arising from the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315
of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other
juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided
in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the
amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter
sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each
additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such cases,
and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions
of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over
6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such
amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided
that in the four cases mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other
officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the
nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be
penalized for a crime punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may be fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty
is to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment
therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the
corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be
committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or
employees of such corporation or other persons responsible for the offense, only such individuals will suffer such
penalty.51Corporate officers or employees, through whose act, default or omission the corporation commits a
crime, are themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the act.53 Moreover, all parties active in promoting
a crime, whether agents or not, are principals.54 Whether such officers or employees are benefited by their
delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself
behind a corporation where he is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL
CHRISTIAN COLLEGE OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992
Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held
Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and
ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral
damages, attorneys fees and costs of suit.
The Antecedents
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre
(Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
(FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs
College of Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted
are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them
to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted
with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing
the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS.
xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor -
such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for
the subject upon enrolment because it is offered by the school. However there would be no instructor for such
subject. Students would be informed that course would be moved to a later date because the school is still
searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the
past few years since its inception because of funds support from foreign foundations. If you will take a look at the
AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall.
Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign
foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would
be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who
assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to
deceive students at cross purpose with its reason for being it is possible for these foreign foundations to lift or
suspend their donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of
Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to
accept rejects. For example how many teachers in AMEC are former teachers of Aquinas University but were
removed because of immorality? Does it mean that the present administration of AMEC have the total definite
moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a
dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of
intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work,
being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As
in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way,
Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol
University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does
this mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach.
You are too old. As an aviation, your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The
reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy
the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced
by evil. When they become members of society outside of campus will be liabilities rather than assets. What do
you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do
you expect from a student who aside from peculiar problems because not all students are rich in their struggle to
improve their social status are even more burdened with false regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI,
Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation.
AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that the
broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a
sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss[11] on FBNIs behalf. The trial court denied the
motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after
passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness and
objectivity in their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all
broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP
permit.
On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for libel except Rima.
The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that
their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not
even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found
that FBNI failed to exercise diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with
Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech, expression, and of
the press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by
the controversial utterances, which are not found by this court to be really very serious and damaging, and
there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes Jun
Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally
ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the
amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of
suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the
decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The
appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for
damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The
dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel
Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January
2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that
FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and
Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as
insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the
broadcasts were made with reckless disregard as to whether they were true or false. The appellate court pointed
out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against
AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of
Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were impelled by their
moral and social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground
for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize
expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false
regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its
employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The
Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed
against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay
AMEC moral damages, attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals
that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a separate civil
action to recover civil liability arising from a criminal offense. On the other hand, Article 33[19] particularly
provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and
physical injuries. AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages. AMEC cites
Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or
juridical person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances
tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the
part of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and physical misfits; and AMEC
students who graduate will be liabilities rather than assets of the society are libelous per se. Taken as a whole, the
broadcasts suggest that AMEC is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite
motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts
to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that
since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public
affairs program, Rima and Alegre should have presented the public issues free from inaccurate and misleading
information.[26] Hearing the students alleged complaints a month before the expos,[27] they had sufficient time to
verify their sources and information. However, Rima and Alegre hardly made a thorough investigation of the
students alleged gripes. Neither did they inquire about nor confirm the purported irregularities in AMEC from the
Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report
from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the
students because they were many and not because there is proof that what they are saying is true.[28] This plainly
shows Rima and Alegres reckless disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in
the United States apply the privilege of neutral reportage in libel cases involving matters of public interest or
public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory
statements made against public figures is shielded from liability, regardless of the republishers subjective
awareness of the truth or falsity of the accusation.[29] Rima and Alegre cannot invoke the privilege of neutral
reportage because unfounded comments abound in the broadcasts. Moreover, there is no existing controversy
involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed
person is a public figure who is involved in an existing controversy, and a party to that controversy makes the
defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of
Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged communications
for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or
actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel
or slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made
is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false
imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public
person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a
public official may be actionable, it must either be a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that
the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.[32] (Emphasis
supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with
public interest. The welfare of the youth in general and AMECs students in particular is a matter which the public
has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters
of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The
record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against
plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the
complaint to them, much less present written complaint or petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give license to the media to malign people and establishments
based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such
laxity would encourage careless and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties,
did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet,
plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the
controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which
certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh.
C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were
very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to
offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove
not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school
was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs
religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo
appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students
fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their
claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was
presented to prove the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled
out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21,
1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court
Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75
but is found by this court to be still very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and
docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion.
Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board
examination easily and become prosperous and responsible professionals.[33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably be inferred from the facts.[34] However, the comments of
Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per
se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio
Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station shall strive to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public affairs and public
issues.[36](Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical
conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio
broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured
for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of
their profession, just like other professionals. A professional code of conduct provides the standards for
determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and
performance of his duties as required by Article 19[37] of the Civil Code. A professional code of conduct also
provides the standards for determining whether a person who willfully causes loss or injury to another has acted in
a manner contrary to morals or good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral
damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of the Civil Code. This
provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for
moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an
honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.[46] Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition
precedent to the recovery of some damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation.
Therefore, we reduce the award of moral damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys
fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys
fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate
courts failed to explicitly state in their respective decisions the rationale for the award of attorneys
fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys
fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the
award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all
events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the
legal reason for the award of attorneys fees.[51](Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court
and depends upon the circumstances of each case, the Court of Appeals failed to point out any circumstance to
justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys
fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and
Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a very regimented process before
they are allowed to go on air. Those who apply for broadcaster are subjected to interviews, examinations and an
apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster.
FBNI points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove
that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them. Rimas
accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed
allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely
voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for
their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the
Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising
from the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by
radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person
who procures, or participates in, the making of the defamatory statements.[54] An employer and employee are
solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment,
at least when the employer authorizes or ratifies the defamation.[55] In this case, Rima and Alegre were clearly
performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither
alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no
showing that FBNI did not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed
the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in
supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and
objectivity and to refrain from using libelous and indecent language is not enough to prove due diligence in the
supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient
information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many
ways of showing diligence in the supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in
mind their qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs
regimented process of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the
KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and
regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre.
Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26
January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral
damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against
petitioner.
SO ORDERED.
[G.R. No. 120135. March 31, 2003]
BANK OF AMERICA NT&SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners, vs. COURT OF APPEALS, HON.
MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29, 1994
decision of the Court of Appeals[1] and the April 28, 1995 resolution denying petitioners motion for reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a
Complaint[2] before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of America
International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping business; they
owned two vessels: Don Aurelio and El Champion, through their wholly-owned corporations; they deposited their
revenues from said business together with other funds with the branches of said banks in the United Kingdom and
Hongkong up to 1979; with their business doing well, the defendant banks induced them to increase the number of
their ships in operation, offering them easy loans to acquire said vessels;[3] thereafter, the defendant banks
acquired, through their (Litonjuas) corporations as the borrowers: (a) El Carrier[4]; (b) El General[5]; (c) El
Challenger[6]; and (d) El Conqueror[7]; the vessels were registered in the names of their corporations; the operation
and the funds derived therefrom were placed under the complete and exclusive control and disposition of the
petitioners;[8]and the possession the vessels was also placed by defendant banks in the hands of persons selected
and designated by them (defendant banks).[9]
The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income
derived from the operation of the vessels as well as of the proceeds of the subsequent foreclosure sale;[10] because
of the breach of their fiduciary duties and/or negligence of the petitioners and/or the persons designated by them
in the operation of private respondents six vessels, the revenues derived from the operation of all the vessels
declined drastically; the loans acquired for the purchase of the four additional vessels then matured and remained
unpaid, prompting defendant banks to have all the six vessels, including the two vessels originally owned by the
private respondents, foreclosed and sold at public auction to answer for the obligations incurred for and in behalf
of the operation of the vessels; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten
percent (10%) of the acquisition cost of the four vessels and were left with the unpaid balance of their loans with
defendant banks.[11] The Litonjuas prayed for the accounting of the revenues derived in the operation of the six
vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners; damages
for breach of trust; exemplary damages and attorneys fees.[12]
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action
against them.[13]
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:
WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The defendant is
therefore, given a period of ten (10) days to file its Answer to the complaint.
SO ORDERED.[14]
Instead of filing an answer the defendant banks went to the Court of Appeals on a Petition for Review on
Certiorari[15] which was aptly treated by the appellate court as a petition for certiorari. They assailed the
above-quoted order as well as the subsequent denial of their Motion for Reconsideration.[16] The appellate court
dismissed the petition and denied petitioners Motion for Reconsideration.[17]
Hence, herein petition anchored on the following grounds:
1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE SEPARATE PERSONALITIES OF THE
PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND THE FOREIGN CORPORATIONS (THE REAL BORROWERS)
CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NO
PERSONALITIES TO SUE.
2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE PRINCIPLE OF FORUM NON
CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN DETERMINING WHETHER
THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE INSTANT CASE,
DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE APPROPRIATE AND PROPER.
3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE PHILIPPINES. IN FACT, THE
PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE
PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT
THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING. [18]
As to the first assigned error: Petitioners argue that the borrowers and the registered owners of the vessels are
the foreign corporations and not private respondents Litonjuas who are mere stockholders; and that the revenues
derived from the operations of all the vessels are deposited in the accounts of the corporations. Hence, petitioners
maintain that these foreign corporations are the legal entities that have the personalities to sue and not herein
private respondents; that private respondents, being mere shareholders, have no claim on the vessels as owners
since they merely have an inchoate right to whatever may remain upon the dissolution of the said foreign
corporations and after all creditors have been fully paid and satisfied;[19]and that while private respondents may
have allegedly spent amounts equal to 10% of the acquisition costs of the vessels in question, their 10% however
represents their investments as stockholders in the foreign corporations.[20]
Anent the second assigned error, petitioners posit that while the application of the principle of forum non
conveniens is discretionary on the part of the Court, said discretion is limited by the guidelines pertaining to the
private as well as public interest factors in determining whether plaintiffs choice of forum should be disturbed, as
elucidated in Gulf Oil Corp. vs. Gilbert[21]and Piper Aircraft Co. vs. Reyno,[22] to wit:
Private interest factors include: (a) the relative ease of access to sources of proof; (b) the availability of
compulsory process for the attendance of unwilling witnesses; (c) the cost of obtaining attendance of willing
witnesses; or (d) all other practical problems that make trial of a case easy, expeditious and inexpensive. Public
interest factors include: (a) the administrative difficulties flowing from court congestion; (b) the local interest in
having localized controversies decided at home; (c) the avoidance of unnecessary problems in conflict of laws or in
the application of foreign law; or (d) the unfairness of burdening citizens in an unrelated forum with jury duty.[23]
In support of their claim that the local court is not the proper forum, petitioners allege the following:
i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in Hongkong and
England. As such, the evidence and the witnesses are not readily available in the Philippines;
ii) The loan transactions were obtained, perfected, performed, consummated and partially paid outside the
Philippines;
iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels were part of an
offshore fleet, not based in the Philippines;
iv) All the loans involved were granted to the Private Respondents foreign CORPORATIONS;
v) The Restructuring Agreements were ALL governed by the laws of England;
vi) The subsequent sales of the mortgaged vessels and the application of the sales proceeds occurred and
transpired outside the Philippines, and the deliveries of the sold mortgaged vessels were likewise made outside the
Philippines;
vii) The revenues of the vessels and the proceeds of the sales of these vessels were ALL deposited to the Accounts
of the foreign CORPORATIONS abroad; and
viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the Philippines.[24]
Petitioners argue further that the loan agreements, security documentation and all subsequent restructuring
agreements uniformly, unconditionally and expressly provided that they will be governed by the laws of
England;[25] that Philippine Courts would then have to apply English law in resolving whatever issues may be
presented to it in the event it recognizes and accepts herein case; that it would then be imposing a significant and
unnecessary expense and burden not only upon the parties to the transaction but also to the local
court. Petitioners insist that the inconvenience and difficulty of applying English law with respect to a wholly
foreign transaction in a case pending in the Philippines may be avoided by its dismissal on the ground of forum non
conveniens. [26]
Finally, petitioners claim that private respondents have already waived their alleged causes of action in the
case at bar for their refusal to contest the foreign civil cases earlier filed by the petitioners against them in
Hongkong and England, to wit:
1.) Civil action in England in its High Court of Justice, Queens Bench Division Commercial Court (1992-Folio No.
2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER
SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g)
EDUARDO K. LITONJUA & (h) AURELIO K. LITONJUA.
2.) Civil action in England in its High Court of Justice, Queens Bench Division, Commercial Court (1992-Folio No.
2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN LITONJUA
and (d) AURELIO KATIPUNAN LITONJUA.
3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992), against (a) ESHLEY
COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g)
AURELIO KATIPUNAN LITONJUA, JR., and (h) EDUARDO KATIPUNAN LITONJUA.
4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of 1992), against (a) ESHLEY
COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g)
AURELIO KATIPUNAN LITONJUA, RJ., and (h) EDUARDO KATIPUNAN LITONJUA.
and that private respondents alleged cause of action is already barred by the pendency of another action or by litis
pendentia as shown above.[27]
On the other hand, private respondents contend that certain material facts and pleadings are omitted and/or
misrepresented in the present petition for certiorari; that the prefatory statement failed to state that part of the
security of the foreign loans were mortgages on a 39-hectare piece of real estate located in the Philippines;[28] that
while the complaint was filed only by the stockholders of the corporate borrowers, the latter are wholly-owned by
the private respondents who are Filipinos and therefore under Philippine laws, aside from the said corporate
borrowers being but their alter-egos, they have interests of their own in the vessels.[29] Private respondents also
argue that the dismissal by the Court of Appeals of the petition for certiorari was justified because there was
neither allegation nor any showing whatsoever by the petitioners that they had no appeal, nor any plain, speedy,
and adequate remedy in the ordinary course of law from the Order of the trial judge denying their Motion to
Dismiss; that the remedy available to the petitioners after their Motion to Dismiss was denied was to file an Answer
to the complaint;[30] that as upheld by the Court of Appeals, the decision of the trial court in not applying the
principle of forum non conveniens is in the lawful exercise of its discretion.[31]Finally, private respondents aver
that the statement of petitioners that the doctrine of res judicata also applies to foreign judgment is merely an
opinion advanced by them and not based on a categorical ruling of this Court;[32] and that herein private
respondents did not actually participate in the proceedings in the foreign courts.[33]
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of petition for
certiorari. Petitioners should have filed an answer to the complaint, proceed to trial and await judgment
before making an appeal. As repeatedly held by this Court:
An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition
for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to interpose as defenses
the objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to elevate the
entire case by appeal in due course. xxx Under certain situations, recourse to certiorari or mandamus is considered
appropriate, i.e., (a) when the trial court issued the order without or in excess of jurisdiction; (b) where there is
patent grave abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy and adequate
remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently
mistaken order maintaining the plaintiffs baseless action and compelling the defendant needlessly to go through a
protracted trial and clogging the court dockets by another futile case.[34]
Records show that the trial court acted within its jurisdiction when it issued the assailed Order denying
petitioners motion to dismiss. Does the denial of the motion to dismiss constitute a patent grave abuse of
discretion? Would appeal, under the circumstances, not prove to be a speedy and adequate remedy? We will
resolve said questions in conjunction with the issues raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the
ground that plaintiffs have no cause of action against defendants since plaintiffs are merely stockholders of the
corporations which are the registered owners of the vessels and the borrowers of petitioners?
No. Petitioners argument that private respondents, being mere stockholders of the foreign corporations, have
no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for
lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue
can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the face thereof, evidently
states no cause of action.[35] In San Lorenzo Village Association, Inc. vs. Court of Appeals,[36] this Court clarified
that a complaint states a cause of action where it contains three essential elements of a cause of action, namely:
(1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the
defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to a
motion to dismiss on the ground of failure to state a cause of action.[37] To emphasize, it is not the lack or absence
of cause of action that is a ground for dismissal of the complaint but rather the fact that the complaint states no
cause of action.[38] Failure to state a cause of action refers to the insufficiency of allegation in the pleading,
unlike lack of cause of action which refers to the insufficiency of factual basis for the action. Failure to state a
cause of action may be raised at the earliest stages of an action through a motion to dismiss the complaint, while
lack of cause of action may be raised any time after the questions of fact have been resolved on the basis of
stipulations, admissions or evidence presented.[39]
In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs,
herein private respondents, have the right to demand for an accounting from defendants (herein petitioners), as
trustees by reason of the fiduciary relationship that was created between the parties involving the vessels in
question; (2) petitioners have the obligation, as trustees, to render such an accounting; and (3) petitioners failed
to do the same.
Petitioners insist that they do not have any obligation to the private respondents as they are mere stockholders
of the corporation; that the corporate entities have juridical personalities separate and distinct from those of the
private respondents. Private respondents maintain that the corporations are wholly owned by them and prior to
the incorporation of such entities, they were clients of petitioners which induced them to acquire loans from said
petitioners to invest on the additional ships.
We agree with private respondents. As held in the San Lorenzo case,[40]
xxx assuming that the allegation of facts constituting plaintiffs cause of action is not as clear and categorical as
would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry into
the merits of the action.
As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits which the
law abhors, and conduce to the definitive determination and termination of the dispute. To do otherwise, that is,
to abort the action on account of the alleged fatal flaws of the complaint would obviously be indecisive and would
not end the controversy, since the institution of another action upon a revised complaint would not be
foreclosed.[41]
Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?
No. The doctrine of forum non-conveniens, literally meaning the forum is inconvenient, emerged in private
international law to deter the practice of global forum shopping,[42] that is to prevent non-resident litigants from
choosing the forum or place wherein to bring their suit for malicious reasons, such as to secure
procedural advantages, to annoy and harass thedefendant, to avoid overcrowded dockets, or to select a more
friendly venue. Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction
where it is not the most convenient or available forum and the parties are not precluded from seeking remedies
elsewhere.[43]
Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts
of the particular case and is addressed to the sound discretion of the trial court.[44] In the case of Communication
Materials and Design, Inc. vs. Court of Appeals,[45] this Court held that xxx [a] Philippine Court may assume
jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: (1) that the
Philippine Court is one to which the parties may conveniently resort to; (2) that the Philippine Court is in a position
to make an intelligent decision as to the law and the facts; and, (3) that the Philippine Court has or is likely to have
power to enforce its decision.[46] Evidently, all these requisites are present in the instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals,[47] that the doctrine
of forum non conveniens should not be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of the Rules
of Court does not include said doctrine as a ground. This Court further ruled that while it is within the discretion of
the trial court to abstain from assuming jurisdiction on this ground, it should do so only after vital facts are
established, to determine whether special circumstances require the courts desistance; and that the propriety of
dismissing a case based on this principle of forum non conveniens requires a factual determination, hence it is
more properly considered a matter of defense.[48]
Third issue. Are private respondents guilty of forum shopping because of the pendency of foreign action?
No. Forum shopping exists where the elements of litis pendentia are present and where a final judgment in one
case will amount to res judicata in the other.[49] Parenthetically, for litis pendentia to be a ground for the
dismissal of an action there must be: (a) identity of the parties or at least such as to represent the same interest in
both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same acts; and (c)
the identity in the two cases should be such that the judgment which may be rendered in one would, regardless of
which party is successful, amount to res judicata in the other.[50]
In case at bar, not all the requirements for litis pendentia are present. While there may be identity of parties,
notwithstanding the presence of other respondents,[51] as well as the reversal in positions of plaintiffs and
defendants[52], still the other requirements necessary for litis pendentia were not shown by petitioner. It merely
mentioned that civil cases were filed in Hongkong and England without however showing the identity of rights
asserted and the reliefs sought for as well as the presence of the elements of res judicata should one of the cases
be adjudged.
As the Court of Appeals aptly observed:
xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties herein xxx,
failed to provide this Court with relevant and clear specifications that would show the presence of the
above-quoted elements or requisites for res judicata. While it is true that the petitioners in their motion for
reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did aver that
Copies of the foreign judgments are hereto attached and made integral parts hereof as Annexes B, C, D and E, they
failed, wittingly or inadvertently, to include a single foreign judgment in their pleadings submitted to this Court as
annexes to their petition. How then could We have been expected to rule on this issue even if We were to hold that
foreign judgments could be the basis for the application of the aforementioned principle of res judicata?[53]
Consequently, both courts correctly denied the dismissal of herein subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioners.
SO ORDERED.
G.R. No. 142616 July 31, 2001
PHILIPPINE NATIONAL BANK, petitioner,

vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set
aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order
issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and
its Order dated October 4, 1999, which denied petitioner's motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law.
Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are
domestic corporations, likewise, organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing
business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00
secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was
later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to
US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments
of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the
real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all
the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27,
1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary
injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of
the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was
raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At
the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its
written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ
of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to
dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner
and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary
injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was
denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary
injunction before the Court of Appeals. In the impugned decision,1 the appellate court dismissed the petition.
Petitioner thus seeks recourse to this Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE
ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY
IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF
JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT
A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders
dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.3
In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate
entities, petitioner is still the party-in-interest in the application for preliminary injunction because it is tasked to
commit acts of foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as
it contains stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents justified the
act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner
is merely an alter ego or a business conduit of PNB-IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:
GROUNDS
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB
CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE
UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE
REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE
MONETARY BOARD.7
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and
eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as
bases for the real estate mortgage over the said property.8
The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint,
respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter
alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein
petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in
the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party
to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the
respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the rescheduling of the
interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit
facilities, and crediting the amount previously paid to PNB by herein respondents.9
Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the
contract. Respondents, therefore, do not have any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary
of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying
its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be
disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is
so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual
stockholders or members, and is not affected by the personal rights, obligations and transactions of the
latter.13 The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's
separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to
prevent the abuses of separate entity privilege and pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court
disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed
merely for the purpose of evading the payment of higher taxes. In the case at bar, respondents fail to show any
cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.
While there exists no definite test of general application in determining when a subsidiary may be treated as a
mere instrumentality of the parent corporation, some factors have been identified that will justify the application
of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway
Co.14 is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by
Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against
Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works,
hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated
that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render
the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the
subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct
of the dominant corporation. Said Court then outlined the circumstances which may be useful in the determination
of whether the subsidiary is but a mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite
variations of fact that can arise but there are certain common circumstances which are important and which, if
present in the proper combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its
incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no assets except those
conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its business or financial responsibility is referred to as the
parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take
their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of
Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine
developed to address situations where the separate corporate personality of a corporation is abused or used for
wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a
corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of
piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality"
or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and
the individual defendant's relationship to the operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the
indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a
demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists.
Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality
doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship
involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the
petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A
suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules
of Court, every action must be prosecuted or defended in the name of the real party-in-interest, unless otherwise
authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom
no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar,
the injunction suit is directed only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but
adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be
resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency
of the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuance
of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule
58, of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. — A preliminary injunction may be granted when it is
established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining
the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts,
either for a limited period or perpetually,
(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation
would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering
to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard compensation.21 Respondents do not deny their
indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the
non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties
are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the
contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that
they have a right protected and that the acts against which the writ is to be directed are violative of said
right.22 The Court is not unmindful of the findings of both the trial court and the appellate court that there may be
serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed, respondents
committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their
error.
All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract
the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court
must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is
hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati,
Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
[G.R. No. 141617. August 14, 2001]
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs. RITA C. MEJIA, as
Executrix of Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ, respondent.
DECISION
GONZAGA-REYES, J.:
In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the Court of
Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV No. 19281.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual background of this
case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in Camarin,
Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of twenty-five (25) hectares and
was covered by Transfer Certificate of Title (TCT) No. 5779 of the Registry of Deeds of Caloocan City. The property
was later subdivided into five lots with an area of five hectares each and pursuant thereto, TCT No. 5779 was
cancelled and five new transfer certificates of title were issued in the name of Gutierrez, namely TCT No. 7123
covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861-C, TCT No. 7126 covering Lot
861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed a Deed of
Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127, for the consideration of
P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez P171,000.00. It was agreed that the balance
of P629,000.00 would be paid in several installments within five years from the date of the deed, at an interest of
nine percent per annum based on the successive unpaid principal balances. Thereafter, the titles of Gutierrez were
cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of the four
parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares of land.[1] The
encumbrance was annotated upon the certificates of title and the owners duplicate certificates. The owners
duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardales failure to settle its mortgage obligation, Gutierrez filed a complaint for
rescission of the contract with the Quezon City Regional Trial Court (RTC), which was docketed as Civil Case No.
Q-12366.[2] On 20 October 1969, during the pendency of the rescission case, Gutierrez died and was substituted by
her executrix, respondent Rita C. Mejia (Mejia). In 1971, plaintiffs presentation of evidence was
terminated. However, Cardale, which was represented by petitioner Adalia B. Francisco (Francisco) in her capacity
as Vice-President and Treasurer of Cardale, lost interest in proceeding with the presentation of its evidence and
the case lapsed into inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became delinquent in the
payment of real estate taxes in the amount of P102,300.00, while the other mortgaged property covered by TCT No.
7531 became delinquent in the amount of P89,231.37, which culminated in their levy and auction sale on 1 and 12
September 1983, in satisfaction of the tax arrears. The highest bidder for the three parcels of land was petitioner
Merryland Development Corporation (Merryland), whose President and majority stockholder is Francisco. A
memorandum based upon the certificate of sale was then made upon the original copies of TCT Nos. 7531 to 7533.
On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for Decision
with the trial court. The hearing of said motion was deferred, however, due to a Motion for Postponement filed by
Cardale through Francisco, who signed the motion in her capacity as officer-in-charge, claiming that Cardale
needed time to hire new counsel. However, Francisco did not mention the tax delinquencies and sale in favor of
Merryland. Subsequently, the redemption period expired and Merryland, acting through Francisco, filed petitions
for consolidation of title,[3] which culminated in the issuance of certain orders[4] decreeing the cancellation of
Cardales TCT Nos. 7531 to 7533 and the issuance of new transfer certificates of title free from any encumbrance or
third-party claim whatsoever in favor of Merryland. Pursuant to such orders, the Register of Deeds of Caloocan City
issued new transfer certificates of title in the name of Merryland which did not bear a memorandum of the
mortgage liens in favor of Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated Manifestation to the
effect that the properties subject of the mortgage and covered by TCT Nos. 7531 to 7533 had been levied upon by
the local government of Caloocan City and sold at a tax delinquency sale. Francisco further claimed that the
delinquency sale had rendered the issues in Civil Case No. Q-12366 moot and academic. Agreeing with Francisco,
the trial court dismissed the case, explaining that since the properties mortgaged to Cardale had been transferred
to Merryland which was not a party to the case for rescission, it would be more appropriate for the parties to
resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC of Quezon
City a complaint for damages with prayer for preliminary attachment against Francisco, Merryland and the Register
of Deeds of Caloocan City. The case was docketed as Civil Case No. Q-49766. On 15 April 1988, the trial court
rendered a decision[5] in favor of the defendants, dismissing the complaint for damages filed by Mejia. It was held
that plaintiff Mejia, as executrix of Gutierrezs estate, failed to establish by clear and convincing evidence her
allegations that Francisco controlled Cardale and Merryland and that she had employed fraud by intentionally
causing Cardale to default in its payment of real property taxes on the mortgaged properties so that Merryland
could purchase the same by means of a tax delinquency sale. Moreover, according to the trial court, the failure to
recover the property subject of the Deed of Sale with Mortgage was due to Mejias failure to actively pursue the
action for rescission (Civil Case No. 12366), allowing the case to drag on for eighteen years. Thus, it ruled that -
xxx xxx xxx
The act of not paying or failing to pay taxes due the government by the defendant Adalia B. Francisco, as treasurer
of Cardale Financing and Realty Corporation do not, per se, constitute perpetration of fraud or an illegal act. It do
[sic] not also constitute an act of evasion of an existing obligation (to plaintiff) if there is no clear showing that
such an act of non-payment of taxes was deliberately made despite its (Cardales) solvency and capability to
pay. There is no evidence showing that Cardale Financing and Realty Corporation was financially capable of paying
said taxes at the time.
There are times when the corporate fiction will be disregarded: (1) where all the members or stockholders commit
illegal act; (2) where the corporation is used as dummy to commit fraud or wrong; (3) where the corporation is an
agency for a parent corporation; and (4) where the stock of a corporation is owned by one person. (I, Fletcher, 58,
59, 61 and 63). None of the foregoing reasons can be applied to the incidents in this case: (1) there appears no
illegal act committed by the stockholders of defendant Merryland Development Corporation and Cardale Financing
and Realty Corporation; (2) the incidents proven by evidence of the plaintiff as well as that of the defendants do
not show that either or both corporations were used as dummies by defendant Adalia B. Francisco to commit fraud
or wrong. To be used as [a] dummy, there has to be a showing that the dummy corporation is controlled by the
person using it. The evidence of plaintiff failed to prove that defendant Adalia B. Francisco has controlling interest
in either or both corporations. On the other hand, the evidence of defendants clearly show that defendant
Francisco has no control over either of the two corporations; (3) none of the two corporations appears to be an
agency for a parent (the other) corporation; and (4) the stock of either of the two corporation [sic] is not owned by
one person (defendant Adalia B. Francisco). Except for defendant Adalia B. Francisco, the incorporators and
stockholders of one corporation are different from the other.
xxx xxx xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years before the then Court of First Instance,
now the Regional Trial Court. Even if the trial of the said case became protracted on account of the retirement
and/or promotion of the presiding judge, as well as the transfer of the case from one sala to another, and as
claimed by the plaintiff that the defendant lost interest, (which allegation is unusual, so to speak), the court
believe [sic] that it would not have taken that long to dispose [of] said case had plaintiff not slept on her rights,
and her duty and obligation to see to it that the case is always set for hearing so that it may be adjudicated [at] the
earliest possible time. This duty pertains to both parties, but plaintiff should have been more assertive, as it was
her obligation, similar to the obligation of plaintiff relative to the service of summons in other cases. The fact that
Cardale Financing and Realty Corporation did not perform its obligation as provided in the said Deed of Sale with
Mortgage (Exhibit A) is very clear. Likewise, the fact that Andrea Cordova, the contracting party, represented by
the plaintiff in this case did not also perform her duties and/or obligation provided in the said contract is also
clear. This could have been the reason why the plaintiff in said case (Exhibit E) slept on her rights and allowed the
same to remain pending for almost 18 years. However, and irrespective of any other reason behind the same, the
court believes that plaintiff, indeed, is the one to blame for the failure of the testate estate of the late Andrea
Cordova Vda. de Gutierrez to recover the money or property due it on the basis of Exhibit A.
xxx xxx xxx
xxx Had the plaintiff not slept on her rights and had it not been for her failure to perform her commensurate duty
to pursue vigorously her case against Cardale Financing and Realty Corporation in said Civil Case No. 12366, she
could have easily known said non-payment of realty taxes on the said properties by said Cardale Financing and
Realty Corporation, or, at least the auction sales that followed, and from which she could have redeemed said
properties within the one year period provided by law, or, have availed of remedies at the time to protect the
interest of the testate estate of the late Andrea Cordova Vda. de Gutierrez.
xxx xxx xxx

The dispositive portion of the trial courts decision states -
WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment in favor of the
defendants Register of Deeds of Caloocan City, Merryland Development Corporation and Adalia B. Francisco, and
against plaintiff Rita C. Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda. De Gutierrez, and hereby
orders:
1. That this case for damages be dismissed, at the same time, plaintiffs motion for reconsideration dated
September 23, 1987 is denied;
2. Plaintiff pay the defendants Merryland Development Corporation and the Register of Deeds the sum of
P20,000.00, and another sum of P20,000.00 to the defendant Adalia B. Francisco, as and for attorneys fees and
litigation expenses, and pay the costs of the proceedings.
SO ORDERED.
The Court of Appeals,[6] in its decision[7] promulgated on 13 April 1999, reversed the trial court, holding that the
corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and Merryland solidarily liable
since these two corporations were used as dummies by Francisco, who employed fraud in allowing Cardale to
default on the realty taxes for the properties mortgaged to Gutierrez so that Merryland could acquire the same free
from all liens and encumbrances in the tax delinquency sale and, as a consequence thereof, frustrating Gutierrezs
rights as a mortgagee over the subject properties. Thus, the Court of Appeals premised its findings of fraud on the
following circumstances
xxx xxx xxx
xxx Appellee Francisco knew that Cardale of which she was vice-president and treasurer had an outstanding
obligation to Gutierrez for the unpaid balance of the real properties covered by TCT Nos. 7531 to 7533, which
Cardale purchased from Gutierrez which account, as of December 1988, already amounted to P4,414,271.43 (Exh.
K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien on the said properties to secure payment of
the aforesaid obligation; she likewise knew that the said mortgaged properties were under litigation in Civil Case
No. Q-12366 which was an action filed by Gutierrez against Cardale for rescission of the sale and/or recovery of
said properties (Exh. E). Despite such knowledge, appellee Francisco did not inform Gutierrezs Estate or the
Executrix (herein appellant) as well as the trial court that the mortgaged properties had incurred tax delinquencies,
and that Final Notices dated July 9, 1982 had been sent by the City Treasurer of Caloocan demanding payment of
such tax arrears within ten (10) days from receipt thereof (Exhs. J & J-1, pp. 37-38, record). Both notices which
were addressed to
Cardale Financing & Realty Corporation c/o Merryland Development Corporation
and sent to appellee Franciscos address at 83 Katipunan Road, White Plains, Quezon City, gave warning that if the
taxes were not paid within the aforesaid period, the properties would be sold at public auction to satisfy the tax
delinquencies.
To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the Estate of
Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of the said
properties. Even a modicum of good faith and fair play should have encouraged appellee Francisco to at least
advise Gutierrezs Estate through her executrix (herein appellant) and the trial court which was hearing the
complaint for rescission and recovery of said properties of such fact, so that the Estate of Gutierrez, which had a
real interest on the properties as mortgagee and as plaintiff in the rescission and recovery suit, could at least take
steps to forestall the auction sale and thereby preserve the properties and protect its interests thereon. And not
only did appellee Francisco allow the auction sale to take place, but she used her other corporation (Merryland) in
participating in the auction sale and in acquiring the very properties which her first corporation (Cardale) had
mortgaged to Gutierrez. Again, appellee Francisco did not thereafter inform the Estate of Gutierrez or its
executrix (herein appellant) about the auction sale, thus precluding the Estate from exercising its right of
redemption. And it was only after the expiration of the redemption period that appellee Francisco filed a
Manifestation in Civil Case No. Q-12366 (Exh. I, p. 36, record), in which she disclosed for the first time to the trial
court and appellant that the properties subject of the case and on which Gutierrez or her Estate had a mortgage
lien, had been sold in a tax delinquency sale. And in order to further conceal her deceptive maneuver, appellee
Francisco did not divulge in her aforesaid Manifestation that it was her other corporation (Merryland) that acquired
the properties in the auction sale.
We are not impressed by appellees submission that no evidence was adduced to prove that Cardale had the
capacity to pay the tax arrears and therefore she or Cardale may not be faulted for the tax delinquency sale of the
properties in question. Appellee Franciscos bad faith or deception did not necessarily lie in Cardales or her failure
to settle the tax deliquencies in question, but in not disclosing to Gutierrezs estate or its executrix (herein
appellant) which had a mortgage lien on said properties the tax delinquencies and the impending auction sale of
the encumbered properties.
Appellee Franciscos deception is further shown by her concealment of the tax delinquency sale of the properties
from the estate or its executrix, thus preventing the latter from availing of the right of redemption of said
properties. That appellee Francisco divulged the auction sale of the properties only after such redemption period
had lapsed clearly betrays her intention to keep Gutierrezs Estate or its Executrix from availing of such right. And
as the evidence would further show, appellee Francisco had a hand in securing for Merryland consolidation of its
ownership of the properties and in seeing to it that Merrylands torrens certificates for the properties were free
from liens and encumbrances. All these appellee Francisco did even as she was fully aware that Gutierrez or her
estate had a valid and subsisting mortgage lien on the said properties.
It is likewise worthy of note that early on appellee Francisco had testified in the action for rescission of sale and
recovery of possession and ownership of the properties which Gutierrez filed against Cardale (Civil Case No.
Q-12366) in her capacity as defendant Cardales vice-president and treasurer. But then, for no plausible reason
whatsoever, she lost interest in continuing with the presentation of evidence for defendant Cardale. And then,
when appellant Mejia as executrix of Gutierrezs Estate filed on August 13, 1984 a Motion for Decision in the
aforesaid case, appellee Francisco moved to defer consideration of appellants Motion on the pretext that
defendant Cardale needed time to employ another counsel. Significantly, in her aforesaid Motion for
Postponement dated August 16, 1984 which appellee Francisco personally signed as Officer-in-Charge of Cardale,
she also did not disclose the fact that the properties subject matter of the case had long been sold at a tax
delinquency sale and acquired by her other corporation Merryland.
And as if what she had already accomplished were not enough fraudulence, appellee Francisco, acting in behalf of
Merryland, caused the issuance of new transfer certificates of title in the name of Merryland, which did not
anymore bear the mortgage lien in favor of Gutierrez. In the meantime, to further avoid payment of the mortgage
indebtedness owing to Gutierrezs estate, Cardale corporation was dissolved.Finally, to put the properties beyond
the reach of the mortgagee, Gutierrezs estate, Merryland caused the subdivision of such properties, which were
subsequently sold on installment basis.
In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform the
mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim that Cardales
failure to pay the realty taxes, per se, does not constitute fraud since it was not proven that Cardale was capable
of paying the taxes. Petitioners also contend that if Mejia, as executrix of Gutierrezs estate, was not remiss in her
duty to pursue Civil Case No. 12366, she could have easily learned of the non-payment of realty taxes on the
subject properties and of the auction sale that followed and thus, have redeemed the properties or availed of some
other remedy to conserve the estate of Gutierrez. In addition, Mejia could have annotated a notice of lis
pendens on the titles of the mortgaged properties, but she failed to do so. It is the stand of petitioners that
respondent has not adduced any proof that Francisco controlled both Cardale and Merryland and that she used
these two corporations to perpetuate a fraud upon Gutierrez or her estate. Petitioners maintain that the evidence
shows that, apart form the meager share of petitioner Francisco, the stockholdings of both corporations comprise
other shareholders, and the stockholders of either of them, aside from petitioner Francisco, are composed of
different persons. As to Civil Case No. 12366, petitioners insist that the decision of the trial court in that case
constitutes res judicata to the instant case.[8]
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct personality
from that of the stockholders or members who compose it.[9] However, when the legal fiction of the separate
corporate personality is abused, such as when the same is used for fraudulent or wrongful ends, the courts have not
hesitated to pierce the corporate veil. One of the earliest formulations of this doctrine of piercing the corporate
veil was made in the American case of United States v. Milwaukee Refrigerator Transit Co.[10] -
If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as
a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.
Since then a good number of cases have firmly implanted this doctrine in Philippine jurisprudence.[11] One such
case is Umali v. Court of Appeals[12] wherein the Court declared that
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction
that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders
may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The
members or stockholders of the corporation will be considered as the corporation, that is, liability will attach
directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.
With specific regard to corporate officers, the general rule is that the officer cannot be held personally liable
with the corporation, whether civilly or otherwise, for the consequences of his acts, if he acted for and in behalf of
the corporation, within the scope of his authority and in good faith. In such cases, the officers acts are properly
attributed to the corporation.[13] However, if it is proven that the officer has used the corporate fiction to defraud
a third party,[14] or that he has acted negligently, maliciously or in bad faith,[15] then the corporate veil shall be
lifted and he shall be held personally liable for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the circumstances
appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The events leading
up to the loss by the Gutierrez estate of its mortgage security attest to this. It has been established that Cardale
failed to comply with its obligation to pay the balance of the purchase price for the four parcels of land it bought
from Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured by a mortgage upon the lands
covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file an action for rescission of the Deed of
Sale with Mortgage (Civil Case No. Q-12366), but the case dragged on for about fourteen years when Cardale, as
represented by Francisco, who was Vice-President and Treasurer of the same,[16] lost interest in completing its
presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a Motion for Decision with
the trial court, there is no question that Francisco knew that the properties subject of the mortgage had become
tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the officer charged with the responsibility of
paying the realty taxes on the corporations properties. This was admitted by the trial court in its decision.[17] In
addition, notices dated 9 July 1982 from the City Treasurer of Caloocan demanding payment of the tax arrears on
the subject properties and giving warning that if the realty taxes were not paid within the given period then such
properties would be sold at public auction to satisfy the tax delinquencies were sent directly to Franciscos address
in White Plains, Quezon City.[18] Thus, as early as 1982, Francisco could have informed the Gutierrez estate or the
trial court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City Treasurer so that the estate
could have taken the necessary steps to prevent the auction sale and to protect its interests in the mortgaged
properties, but she did no such thing. Finally, in 1983, the properties were levied upon and sold at public auction
wherein Merryland - a corporation where Francisco is a stockholder[19] and concurrently acts as President and
director[20] - was the highest bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,[21] the period for redeeming the properties
subject of the tax sale had not yet expired.[22] Under the Realty Property Tax Code,[23]pursuant to which the tax
levy and sale were prosecuted,[24] both the delinquent taxpayer and in his absence, any person holding a lien or
claim over the property shall have the right to redeem the property within one year from the date of registration of
the sale.[25] However, if these persons fail to redeem the property within the time provided, then the purchaser
acquires the property free from any encumbrance or third party claim whatsoever.[26] Cardale made no attempts to
redeem the mortgaged property during this time. Moreover, instead of informing Mejia or the trial court in Q-12366
about the tax sale, the records show that Francisco filed a Motion for Postponement[27] in behalf of Cardale - even
signing the motion in her capacity as officer-in-charge - which worked to defer the hearing of Mejias Motion for
Decision. No mention was made by Francisco of the tax sale in the motion for postponement. Only after the
redemption period had expired did Francisco decide to reveal what had transpired by filing a Manifestation stating
that the properties subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency sale; however,
Francisco failed to mention that it was Merryland that acquired the properties since she was probably afraid that if
she did so the court would see behind her fraudulent scheme. In this regard, it is also significant to note that it was
Francisco herself who filed the petitions for consolidation of title and who helped secure for Merryland titles over
the subject properties free from any encumbrance or third-party claim whatsoever.
It is exceedingly apparent to the Court that the totality of Francisos actions clearly betray an intention to
conceal the tax delinquencies, levy and public auction of the subject properties from the estate of Gutierrez and
the trial court in Civil Case No. Q-12366 until after the expiration of the redemption period when the remotest
possibility for the recovery of the properties would be extinguished.[28]Consequently, Francisco had effectively
deprived the estate of Gutierrez of its rights as mortgagee over the three parcels of land which were sold to
Cardale. If Francisco was acting in good faith, then she should have disclosed the status of the mortgaged
properties to the trial court in Civil Case No. Q-12366 - especially after Mejia had filed a Motion for Decision, in
response to which she filed a motion for postponement wherein she could easily have mentioned the tax sale -
since this action directly affected such properties which were the subject of both the sale and mortgage.
That Merryland acquired the property at the public auction only serves to shed more light upon Franciscos
fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the controlling stockholder and
President of Merryland.[29] Thus, aside from the instrumental role she played as an officer of Cardale, in evading
that corporations legitimate obligations to Gutierrez, it appears that Franciscos actions were also oriented towards
securing advantages for another corporation in which she had a substantial interest. We cannot agree, however,
with the Court of Appeals decision to hold Merryland solidarily liable with Francisco. The only act imputable to
Merryland in relation to the mortgaged properties is that it purchased the same and this by itself is not a fraudulent
or wrongful act. No evidence has been adduced to establish that Merryland was a mere alter ego or business
conduit of Francisco. Time and again it has been reiterated that mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.[30] Neither has it been alleged or proven that Merryland is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of Cardale.[31] Even assuming that the businesses of Cardale and Merryland are interrelated, this alone is
not justification for disregarding their separate personalities, absent any showing that Merryland was purposely
used as a shield to defraud creditors and third persons of their rights.[32] Thus, Merrylands separate juridical
personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43 in favor of
the estate of Gutierrez which represents the unpaid balance of the purchase price in the amount of P629,000.00
with an interest rate of nine percent (9%) per annum, in accordance with the agreement of the parties under the
Deed of Sale with Mortgage,[33] as of December 1988.[34] Therefore, in addition to the amount awarded by the
appellate court, Francisco should pay the estate of Gutierrez interest on the unpaid balance of the purchase price
(in the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989 until fully
satisfied.
Finally, contrary to petitioners assertions, we agree with the Court of Appeals that the decision of the trial
court in Civil Case No. Q-12366 does not constitute res judicata insofar as the present case is concerned because
the decision in the first case was not a judgment on the merits. Rather, it was merely based upon the premise that
since Cardale had been dissolved and the property acquired by another corporation, the action for rescission would
not prosper. As a matter of fact, it was even expressly stated by the trial court that the parties should ventilate
their issues in another action.
WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED so as to hold
ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of P4,314,271.43 and for interest on the
unpaid balance of the purchase price (in the amount of P629,000.00) at the rate of nine percent (9%) per annum
computed from January, 1989 until fully satisfied.MERRYLAND is hereby absolved from all liability.
SO ORDERED.
[G.R. No. 142435. April 30, 2003]
ESTELITA BURGOS LIPAT and ALFREDO LIPAT, petitioners, vs. PACIFIC BANKING CORPORATION, REGISTER OF
DEEDS, RTC EX-OFFICIO SHERIFF OF QUEZON CITY and the Heirs of EUGENIO D. TRINIDAD, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks the reversal of the Decision[1] dated October 21, 1999 of the Court
of Appeals in CA-G.R. CV No. 41536 which dismissed herein petitioners appeal from the Decision[2] dated February
10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-4152. The trial court
had dismissed petitioners complaint for annulment of real estate mortgage and the extra-judicial foreclosure
thereof. Likewise brought for our review is the Resolution[3] dated February 23, 2000 of the Court of Appeals which
denied petitioners motion for reconsideration.
The facts, as culled from records, are as follows:
Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading (BET), a single
proprietorship with principal office at No. 814 Aurora Boulevard, Cubao, Quezon City. BET was engaged in the
manufacture of garments for domestic and foreign consumption. The Lipats also owned the Mystical Fashions in the
United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her daughter,
Teresita B. Lipat, to manage BET in the Philippines while she was managing Mystical Fashions in the United States.
In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special
power of attorney appointing Teresita Lipat as her attorney-in-fact to obtain loans and other credit
accommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to
execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended
by Pacific Bank including any extension or renewal thereof.
Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in
behalf of her mother, Mrs. Lipat and BET, a loan from Pacific Bank amounting to P583,854.00 to buy fabrics to be
manufactured by BET and exported to Mystical Fashions in the United States. As security therefor, the Lipat
spouses, as represented by Teresita, executed a Real Estate Mortgage over their property located at No. 814 Aurora
Blvd., Cubao, Quezon City. Said property was likewise made to secure other additional or new loans, discounting
lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor and/or Debtor may
subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the
whole or part of said original, additional or new loans, discounting lines, overdrafts and other credit
accommodations, including interest and expenses or other obligations of the Mortgagor and/or Debtor owing to the
Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books and records of
the Mortgagee.[4]
On September 5, 1979, BET was incorporated into a family corporation named Belas Export Corporation (BEC) in
order to facilitate the management of the business. BEC was engaged in the business of manufacturing and
exportation of all kinds of garments of whatever kind and description[5] and utilized the same machineries and
equipment previously used by BET. Its incorporators and directors included the Lipat spouses who owned a
combined 300 shares out of the 420 shares subscribed, Teresita Lipat who owned 20 shares, and other close
relatives and friends of the Lipats.[6] Estelita Lipat was named president of BEC, while Teresita became the
vice-president and general manager.
Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with
the corresponding promissory notes duly executed by Teresita on behalf of the corporation. A letter of credit was
also opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after BEC
executed the corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for
additional finances. These transactions were all secured by the real estate mortgage over the Lipats property.
The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately,
BEC defaulted in its payments. After receipt of Pacific Banks demand letters, Estelita Lipat went to the office of
the banks liquidator and asked for additional time to enable her to personally settle BECs obligations. The bank
acceded to her request but Estelita failed to fulfill her promise.
Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law
the mortgaged property was sold at public auction. On January 31, 1989, a certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder.
On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the
real estate mortgage, extrajudicial foreclosure and the certificate of sale issued over the property against Pacific
Bank and Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152, alleged, among
others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were
executed without the requisite board resolution of the Board of Directors of BEC. The Lipats also averred that
assuming said acts were valid and binding on BEC, the same were the corporations sole obligation, it having a
personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresitas authority to secure
a loan from Pacific Bank was specifically limited to Mrs. Lipats sole use and benefit and that the real estate
mortgage was executed to secure the Lipats and BETs P583,854.00 loan only.
In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade
payments of the value of the promissory notes, trust receipt, and export bills with their property because they and
the BEC are one and the same, the latter being a family corporation. Respondent Trinidad further claimed that he
was a buyer in good faith and for value and that petitioners are estopped from denying BECs existence after holding
themselves out as a corporation.
After trial on the merits, the RTC dismissed the complaint, thus:
WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must
be, as is hereby, dismissed. Plaintiffs however has five (5) months and seventeen (17) days reckoned from the
finality of this decision within which to exercise their right of redemption. The writ of injunction issued is
automatically dissolved if no redemption is effected within that period.
The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.
No costs.
IT IS SO ORDERED.[7]
The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family
corporation of the Lipats. As such, it was a mere extension of petitioners personality and business and a mere alter
ego or business conduit of the Lipats established for their own benefit. Hence, to allow petitioners to invoke the
theory of separate corporate personality would sanction its use as a shield to further an end subversive of
justice.[8] Thus, the trial court pierced the veil of corporate fiction and held that Belas Export Corporation and
petitioners (Lipats) are one and the same. Pacific Bank had transacted business with both BET and BEC on the
supposition that both are one and the same. Hence, the Lipats were estopped from disclaiming any obligations on
the theory of separate personality of corporations, which is contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal,
however, was dismissed by the appellate court for lack of merit. The Court of Appeals found that there was ample
evidence on record to support the application of the doctrine of piercing the veil of corporate fiction. In affirming
the findings of the RTC, the appellate court noted that Mrs. Lipat had full control over the activities of the
corporation and used the same to further her business interests.[9] In fact, she had benefited from the loans
obtained by the corporation to finance her business. It also found unnecessary a board resolution authorizing
Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporations by-laws allowed such
conduct even without a board resolution. Finally, the Court of Appeals ruled that the mortgage property was not
only liable for the original loan of P583,854.00 but likewise for the value of the promissory notes, trust receipt, and
export bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts, and
credit accommodations which petitioners subsequently obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of
February 23, 2000.[10]
Hence, this petition, with petitioners submitting that the court a quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT
ONLY FOR THE AMOUNT OF P583,854.00 BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST
RECEIPTS AND EXPORT BILLS OF BELAS EXPORT CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS
BEYOND THIS COURTS JURISDICTION FOR IT IS BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR
ACCOMMODATIONS AND TRUST RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY
HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR
RECONSIDERATION IS AN UNAUTHORIZED MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR
BE OF ANY CONSEQUENCE TO APPELLANTS.[11]
In sum, the following are the relevant issues for our resolution:
1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;
2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount
of P583,854.00 but also for the value of the promissory notes, trust receipt, and export bills subsequently incurred
by BEC; and
3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed of real estate
mortgage.
On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for
the obligations incurred by BEC through the application of the doctrine of piercing the veil of corporate fiction
absent any clear showing of fraud on their part.
Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the
findings of the trial court, as affirmed by the Court of Appeals, that BEC was organized as a business conduit for the
benefit of petitioners.
Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the
resolution of the appellate court show that in finding petitioners mortgaged property liable for the obligations of
BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in piercing the
veil of corporate fiction. When the corporation is the mere alter ego or business conduit of a person, the separate
personality of the corporation may be disregarded.[12] This is commonly referred to as the instrumentality rule or
the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of
corporations. As held in one case,
Where one corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the instrumentality may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its principal. xxx[13]
We find that the evidence on record demolishes, rather than buttresses, petitioners contention that BET and
BEC are separate business entities. Note that Estelita Lipat admitted that she and her husband, Alfredo, were the
owners of BET[14] and were two of the incorporators and majority stockholders of BEC.[15] It is also undisputed that
Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit
lines from Pacific Bank on her behalf.[16] Incidentally, Teresita was designated as executive-vice president and
general manager of both BET and BEC, respectively.[17] We note further that: (1) Estelita and Alfredo Lipat are the
owners and majority shareholders of BET and BEC, respectively;[18] (2) both firms were managed by their daughter,
Teresita;[19] (3) both firms were engaged in the garment business, supplying products to Mystical Fashion, a U.S.
firm established by Estelita Lipat; (4) both firms held office in the same building owned by the Lipats;[20] (5) BEC is
a family corporation with the Lipats as its majority stockholders; (6) the business operations of the BEC were so
merged with those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were
held by Estelita Lipat and the corporation itself had no visible assets; (8) the board of directors of BEC was
composed of the Burgos and Lipat family members;[21] (9) Estelita had full control over the activities of and decided
business matters of the corporation;[22] and that (10) Estelita Lipat had benefited from the loans secured from
Pacific Bank to finance her business abroad[23] and from the export bills secured by BEC for the account of Mystical
Fashion.[24] It could not have been coincidental that BET and BEC are so intertwined with each other in terms of
ownership, business purpose, and management.Apparently, BET and BEC are one and the same and the latter is a
conduit of and merely succeeded the former. Petitioners attempt to isolate themselves from and hide behind
the corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the classical
doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere
continuation and successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured
under the name of BEC on the pretext that it was signed for the benefit and under the name of BET. We are thus
constrained to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing
the corporate veil of BEC.
On the second issue, petitioners contend that their mortgaged property should not be made liable for the
subsequent credit lines and loans incurred by BEC because, first, it was not covered by the mortgage contract of
BET which only covered the loan of P583,854.00 and which allegedly had already been paid; and, second, it was
secured by Teresita Lipat without any authorization or board resolution of BEC.
We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged property is not
limited to answer for the loan of P583,854.00. Thus:
Finally, the extent to which the Lipats property can be held liable under the real estate mortgage is not limited to
P583,854.00. It can be held liable for the value of the promissory notes, trust receipt and export bills as well. For
the mortgage was executed not only for the purpose of securing the Belas Export Tradings original loan of
P583,854.00, but also for other additional or new loans, discounting lines, overdrafts and credit accommodations,
of whatever amount, which the Mortgagor and/or Debtor may subsequently obtain from the mortgagee as well as
any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said original, additional or new
loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other
obligations of the Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly principal or
secondary, as appears in the accounts, books and records of the mortgagee.[25]
As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on
appeal by the Supreme Court, provided they are borne out by the record or based on substantial evidence.[26] As
noted earlier, BEC merely succeeded BET as petitioners alter ego; hence, petitioners mortgaged property must be
held liable for the subsequent loans and credit lines of BEC.
Further, petitioners contention that the original loan had already been paid, hence, the mortgaged property
should not be made liable to the loans of BEC, is unsupported by any substantial evidence other than Estelita Lipats
self-serving testimony. Two disputable presumptions under the rules on evidence weigh against petitioners,
namely: (a) that a person takes ordinary care of his concerns;[27] and (b) that things have happened according to
the ordinary course of nature and the ordinary habits of life.[28] Here, if the original loan had indeed been paid,
then logically, petitioners would have asked from Pacific Bank for the required documents evidencing receipt and
payment of the loans and, as owners of the mortgaged property, would have immediately asked for the
cancellation of the mortgage in the ordinary course of things. However, the records are bereft of any evidence
contradicting or overcoming said disputable presumptions.
Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by
BEC as they were secured without any proper authorization or board resolution. They also blame the bank for its
laxity and complacency in not requiring a board resolution as a requisite for approving the loans.
Such contentions deserve scant consideration.
Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both
petitioner Estelita Lipat and Alice Burgos, petitioners rebuttal witness, no business or stockholders meetings were
conducted nor were there election of officers held since its incorporation. In fact, not a single board resolution was
passed by the corporate board[29]and it was Estelita Lipat and/or Teresita Lipat who decided business matters.[30]
Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered
into by Teresita Lipat with Pacific Bank, who in good faith, relied on the authority of the former as manager to act
on behalf of petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to decide whether
the corporation should enter into a contract that will bind the corporation is lodged in its board of directors,
subject to the articles of incorporation, by-laws, or relevant provisions of law, yet, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its
functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation
is generally derived from law, corporate by-laws, or authorization from the board, either expressly or impliedly by
habit, custom, or acquiescence in the general course of business.[31] Apparent authority, is derived not merely from
practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an
officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which
it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary powers.[32]
In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of
attorney executed by Estelita Lipat. Recall that Teresita Lipat acted as the manager of both BEC and BET and had
been deciding business matters in the absence of Estelita Lipat. Further, the export bills secured by BEC were for
the benefit of Mystical Fashion owned by Estelita Lipat.[33] Hence, Pacific Bank cannot be faulted for relying on the
same authority granted to Teresita Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar
doctrine that if a corporation knowingly permits one of its officers or any other agent to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation
will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents
authority.[34]
We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of
BEC. Suffice it to state that Alfredo Lipat never disputed the validity of the real estate mortgage of the original
loan; hence, he cannot now dispute the subsequent loans obtained using the same mortgage contract since it is, by
its very terms, a continuing mortgage contract.
On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of
the issue on attorneys fees on the ground that it was raised for the first time on appeal. We find the conclusion of
the Court of Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not raised in the
complaint cannot be raised for the first time on appeal.[35] A close perusal of the complaint yields no allegations
disputing the attorneys fees imposed under the real estate mortgage and petitioners cannot now allege that they
have impliedly disputed the same when they sought the annulment of the contract.
In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and
resolution herein assailed by petitioners.
WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February
23, 2000 of the Court of Appeals in CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. No. 137592. December 12, 2001]
ANG MGA KAANIB SA IGLESIA NG DIOS KAY KRISTO HESUS, H.S.K. SA BANSANG PILIPINAS, INC. petitioner,
vs. IGLESIA NG DIOS KAY CRISTO JESUS, HALIGI AT SUHAY NG KATOTOHANAN, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review assailing the Decision dated October 7, 1997[1] and the Resolution dated February 16,
1999[2] of the Court of Appeals in CA-G.R. SP No. 40933, which affirmed the Decision of the Securities and Exchange
and Commission (SEC) in SEC-AC No. 539.[3]
Respondent Iglesia ng Dios Kay Cristo Jesus, Haligi at Suhay ng Katotohanan (Church of God in Christ Jesus, the
Pillar and Ground of Truth),[4] is a non-stock religious society or corporation registered in 1936. Sometime in 1976,
one Eliseo Soriano and several other members of respondent corporation disassociated themselves from the latter
and succeeded in registering on March 30, 1977 a new non-stock religious society or corporation, named Iglesia ng
Dios Kay Kristo Hesus, Haligi at Saligan ng Katotohanan.
On July 16, 1979, respondent corporation filed with the SEC a petition to compel the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its corporate name, which petition was docketed as SEC Case No.
1774. On May 4, 1988, the SEC rendered judgment in favor of respondent, ordering the Iglesia ng Dios Kay Kristo
Hesus, Haligi at Saligan ng Katotohanan to change its corporate name to another name that is not similar or
identical to any name already used by a corporation, partnership or association registered with the
Commission.[5] No appeal was taken from said decision.
It appears that during the pendency of SEC Case No. 1774, Soriano, et al., caused the registration on April 25,
1980 of petitioner corporation, Ang Mga Kaanib sa Iglesia ng Dios Kay Kristo Hesus, H.S.K., sa Bansang
Pilipinas. The acronym H.S.K. stands for Haligi at Saligan ng Katotohanan.[6]
On March 2, 1994, respondent corporation filed before the SEC a petition, docketed as SEC Case No. 03-94-4704,
praying that petitioner be compelled to change its corporate name and be barred from using the same or similar
name on the ground that the same causes confusion among their members as well as the public.
Petitioner filed a motion to dismiss on the ground of lack of cause of action. The motion to dismiss was
denied. Thereafter, for failure to file an answer, petitioner was declared in default and respondent was allowed to
present its evidence ex parte.
On November 20, 1995, the SEC rendered a decision ordering petitioner to change its corporate name. The
dispositive portion thereof reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor of the petitioner (respondent herein).
Respondent Mga Kaanib sa Iglesia ng Dios Kay Kristo Jesus (sic), H.S.K. sa Bansang Pilipinas (petitioner herein) is
hereby MANDATED to change its corporate name to another not deceptively similar or identical to the same
already used by the Petitioner, any corporation, association, and/or partnership presently registered with the
Commission.
Let a copy of this Decision be furnished the Records Division and the Corporate and Legal Department [CLD] of
this Commission for their records, reference and/or for whatever requisite action, if any, to be undertaken at their
end.
SO ORDERED.[7]
Petitioner appealed to the SEC En Banc, where its appeal was docketed as SEC-AC No. 539. In a decision dated
March 4, 1996, the SEC En Banc affirmed the above decision, upon a finding that petitioner's corporate name was
identical or confusingly or deceptively similar to that of respondents corporate name.[8]
Petitioner filed a petition for review with the Court of Appeals. On October 7, 1997, the Court of Appeals
rendered the assailed decision affirming the decision of the SEC En Banc. Petitioners motion for reconsideration
was denied by the Court of Appeals on February 16, 1992.
Hence, the instant petition for review, raising the following assignment of errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER HAS NOT BEEN DEPRIVED OF ITS
RIGHT TO PROCEDURAL DUE PROCESS, THE HONORABLE COURT OF APPEALS DISREGARDED THE JURISPRUDENCE
APPLICABLE TO THE CASE AT BAR AND INSTEAD RELIED ON TOTALLY INAPPLICABLE JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS ERRED IN ITS INTEPRETATION OF THE CIVIL CODE PROVISIONS ON
EXTINCTIVE PRESCRIPTION, THEREBY RESULTING IN ITS FAILURE TO FIND THAT THE RESPONDENT'S RIGHT OF
ACTION TO INSTITUTE THE SEC CASE HAS SINCE PRESCRIBED PRIOR TO ITS INSTITUTION.
III
THE HONORABLE COURT OF APPEALS FAILED TO CONSIDER AND PROPERLY APPLY THE EXCEPTIONS ESTABLISHED
BY JURISPRUDENCE IN THE APPLICATION OF SECTION 18 OF THE CORPORATION CODE TO THE INSTANT CASE.
IV
THE HONORABLE COURT OF APPEALS FAILED TO PROPERLY APPRECIATE THE SCOPE OF THE CONSTITUTIONAL
GUARANTEE ON RELIGIOUS FREEDOM, THEREBY FAILING TO APPLY THE SAME TO PROTECT PETITIONERS
RIGHTS.[9]
Invoking the case of Legarda v. Court of Appeals,[10] petitioner insists that the decision of the Court of Appeals
and the SEC should be set aside because the negligence of its former counsel of record, Atty. Joaquin Garaygay, in
failing to file an answer after its motion to dismiss was denied by the SEC, deprived them of their day in court.
The contention is without merit. As a general rule, the negligence of counsel binds the client. This is based on
the rule that any act performed by a lawyer within the scope of his general or implied authority is regarded as an
act of his client.[11] An exception to the foregoing is where the reckless or gross negligence of the counsel deprives
the client of due process of law.[12] Said exception, however, does not obtain in the present case.
In Legarda v. Court of Appeals, the effort of the counsel in defending his clients cause consisted in filing a
motion for extension of time to file answer before the trial court. When his client was declared in default, the
counsel did nothing and allowed the judgment by default to become final and executory. Upon the insistence of his
client, the counsel filed a petition to annul the judgment with the Court of Appeals, which denied the petition, and
again the counsel allowed the denial to become final and executory. This Court found the counsel grossly negligent
and consequently declared as null and void the decision adverse to his client.
The factual antecedents of the case at bar are different. Atty. Garaygay filed before the SEC a motion to
dismiss on the ground of lack of cause of action. When his client was declared in default for failure to file an
answer, Atty. Garaygay moved for reconsideration and lifting of the order of default.[13] After judgment by default
was rendered against petitioner corporation, Atty. Garaygay filed a motion for extension of time to appeal/motion
for reconsideration, and thereafter a motion to set aside the decision.[14]
Evidently, Atty. Garaygay was only guilty of simple negligence. Although he failed to file an answer that led to
the rendition of a judgment by default against petitioner, his efforts were palpably real, albeit bereft of zeal.[15]
Likewise, the issue of prescription, which petitioner raised for the first time on appeal to the Court of Appeals,
is untenable. Its failure to raise prescription before the SEC can only be construed as a waiver of that
defense.[16] At any rate, the SEC has the authority to de-register at all times and under all circumstances corporate
names which in its estimation are likely to spawn confusion. It is the duty of the SEC to prevent confusion in the use
of corporate names not only for the protection of the corporations involved but more so for the protection of the
public.[17]
Section 18 of the Corporation Code provides:
Corporate Name. --- No corporate name may be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other
name already protected by law or is patently deceptive, confusing or is contrary to existing laws. When a change in
the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the
amended name.
Corollary thereto, the pertinent portion of the SEC Guidelines on Corporate Names states:
(d) If the proposed name contains a word similar to a word already used as part of the firm name or style of a
registered company, the proposed name must contain two other words different from the name of the company
already registered;
Parties organizing a corporation must choose a name at their peril; and the use of a name similar to one
adopted by another corporation, whether a business or a nonprofit organization, if misleading or likely to injure in
the exercise of its corporate functions, regardless of intent, may be prevented by the corporation having a prior
right, by a suit for injunction against the new corporation to prevent the use of the name.[18]
Petitioner claims that it complied with the aforecited SEC guideline by adding not only two but eight words to
their registered name, to wit: Ang Mga Kaanib" and "Sa Bansang Pilipinas, Inc., which, petitioner argues,
effectively distinguished it from respondent corporation.
The additional words Ang Mga Kaanib and Sa Bansang Pilipinas, Inc. in petitioners name are, as correctly
observed by the SEC, merely descriptive of and also referring to the members, or kaanib, of respondent who are
likewise residing in the Philippines. These words can hardly serve as an effective differentiating medium necessary
to avoid confusion or difficulty in distinguishing petitioner from respondent. This is especially so, since both
petitioner and respondent corporations are using the same acronym --- H.S.K.;[19] not to mention the fact that both
are espousing religious beliefs and operating in the same place. Parenthetically, it is well to mention that the
acronym H.S.K. used by petitioner stands for Haligi at Saligan ng Katotohanan.[20]
Then, too, the records reveal that in holding out their corporate name to the public, petitioner highlights the
dominant words IGLESIA NG DIOS KAY KRISTO HESUS, HALIGI AT SALIGAN NG KATOTOHANAN, which is strikingly
similar to respondent's corporate name, thus making it even more evident that the additional words Ang Mga
Kaanib and Sa Bansang Pilipinas, Inc., are merely descriptive of and pertaining to the members of respondent
corporation.[21]
Significantly, the only difference between the corporate names of petitioner and respondent are the
words SALIGAN and SUHAY. These words are synonymous --- both mean ground, foundation or support. Hence, this
case is on all fours with Universal Mills Corporation v. Universal Textile Mills, Inc.,[22] where the Court ruled that
the corporate names Universal Mills Corporation and Universal Textile Mills, Inc., are undisputably so similar that
even under the test of reasonable care and observation confusion may arise.
Furthermore, the wholesale appropriation by petitioner of respondent's corporate name cannot find
justification under the generic word rule. We agree with the Court of Appeals conclusion that a contrary ruling
would encourage other corporations to adopt verbatim and register an existing and protected corporate name, to
the detriment of the public.
The fact that there are other non-stock religious societies or corporations using the names Church of the Living
God, Inc., Church of God Jesus Christ the Son of God the Head, Church of God in Christ & By the Holy Spirit, and
other similar names, is of no consequence. It does not authorize the use by petitioner of the essential and
distinguishing feature of respondent's registered and protected corporate name.[23]
We need not belabor the fourth issue raised by petitioner. Certainly, ordering petitioner to change its
corporate name is not a violation of its constitutionally guaranteed right to religious freedom. In so doing, the SEC
merely compelled petitioner to abide by one of the SEC guidelines in the approval of partnership and corporate
names, namely its undertaking to manifest its willingness to change its corporate name in the event another person,
firm, or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar
to it.
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The appealed decision of
the Court of Appeals is AFFIRMED in toto.
SO ORDERED.

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[A.M. No. MTJ-02-1443.

July 31, 2002]

As the OCA observed:

G.R. No. 75875 December 15, 1989

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,

Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

The antecedent facts can be summarized as follows:

(1) Cumulative voting for directors:

xxx xxx xxx

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

The parol evidence Rule under Rule 130 provides:

(b) When there is an intrinsic ambiguity in the writing.

xxx xxx xxx

It has been ruled:

xxx xxx xxx

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

As correctly held by the SEC Hearing Officer:

G. R. No. 164317 February 6, 2006

ALFREDO CHING, Petitioner,

CALLEJO, SR., J.:

T/R Nos. Date Granted Maturity Date Principal Description of Goods

2. That the respondent is a mere surety of the trust receipts; and

Thus, petitioner filed the instant petition, alleging that:

The OSG, for its part, submits a contrary view, to wit:

The ruling of the CA is correct.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

[G.R. No. 141994. January 17, 2005]

SO ORDERED. [13] (Emphasis supplied)

The Ruling of the Court of Appeals

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

The Courts Ruling

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

[G.R. No. 120135. March 31, 2003]

G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,

The antecedents of this case are as follows:

The petition is impressed with merit.

These are as follows:

(c) The parent corporation finances the subsidiary.

(e) The subsidiary has grossly inadequate capital.

The Tennessee Supreme Court thus ruled:

[G.R. No. 141617. August 14, 2001]

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Cardale Financing & Realty Corporation c/o Merryland Development Corporation

[G.R. No. 137592. December 12, 2001]

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